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A Government Shutdown Looms

The stormcloud of a government shutdown appears to be looming on the horizon.

On November 28th, President Trump tweeted that he “didn’t see a deal” with Democratic leaders Chuck Schumer and Nancy Pelosi regarding the issues of both illegal immigration and tax reform. Shortly after this tweet was put out, Schumer and Pelosi did not attend a scheduled meeting with President Trump. Instead, Pelosi and Schumer announced in a joint statement that "Rather than going to the White House for a show meeting that won't result in an agreement, we've asked McConnell and Ryan to meet this afternoon”. However, both GOP leaders were present at the meeting with President Trump.

Meanwhile, the federal government will run out of money on December 8th if no spending bill is passed, resulting in a government shutdown - and there are a lot of things that can go wrong by then. For example, almost a year into his presidency, Trump has no major legislative achievement. While the Republicans have made progress in passing their tax reform bill, they remain divided, with potential mavericks such as John McCain, Bob Corker, and Jeff Flake all giving mixed signals on the bill. If no bill is passed, Trump could leverage the threat of a government shutdown in order to attempt to force the GOP to pass something big - like an Obamacare repeal. In particular, if Trump demands funds for a border wall in his spending bill, he will be opposed by the entire Democratic Party and several members of the GOP. Depending on the actions of the president, a legislative stalemate looks like a very real possibility.

The government has already shut down once this decade, in 2013 over the issue of Obamacare. This resulted in a fairly sizeable dip in the stock market and resulted in American’s already dismal approval of Congress to sink even lower. If a shutdown occurs again, we will likely see the same thing. Trump’s approval rating, meanwhile, will likely stay at the 30-40% level that it has been constant at for the entirety of his presidency. This is because the same 30-40% of people who approve of Trump are also those who supported him in the primaries over Cruz, Rubio, and Kasich, and vehemently distrust the media and party elites on both the left and right. Trump will simply divert the blame for a shutdown with his twitter account, and his base will gobble it up.

A government shutdown is not a good thing, but it isn’t a world-ending event either. While it will result in a stock market correction (which is probably needed at this point, as P/E ratios are high and stocks are overvalued in general), confidence in the government can’t get much lower. The government should certainly attempt to avoid a shutdown, but as Ted Cruz demonstrated in 2013, parties fighting for their respective policies may very well trump the need to avoid a shutdown.